Renewable Energy Credits – SREC Credits
Of all the incentives for installing solar panel systems, solar renewable energy certificates (SRECs) are some of the most complicated to understand. However, SRECs can provide sizable income to owners of solar power systems that live in areas with SREC markets.
Where Do Green Energy Credits Come From?
There are several power producing technologies that can qualify for creating green energy credits. These are
- Small hydro-power facilities
- Biomass, bio-fuels
- Hydrogen powered fuel cells
What is an SREC?
Solar Renewable Energy Certificates (SRECs) are a solar incentive that allows homeowners to sell certificates for energy to their utility. A homeowner earns one SREC for every 1000 kilowatt hours (kWhs) produced by their solar panel system. An SREC can be worth over $300 in certain states.
SRECs exist as a result of a regulation known as the renewable portfolio standard (RPS). Renewable portfolio standards are state laws that require utilities to produce a specific percentage of their electricity from renewable resources. Nearly 30 states and Washington, D.C. have an RPS, and eight states have a renewable portfolio goal.
To meet their RPS requirements, electricity providers must obtain renewable energy certificates (RECs), which serve as proof that they have either produced renewable electricity themselves or paid someone who is producing renewable electricity for the right to “count” that electricity themselves. Many renewable portfolio standards also have a solar carve-out, which requires that a minimum percentage of electricity sales in that state come specifically from solar power. In those cases, SRECs are used to account for solar electricity production.
SRECs are just like RECs, but specific to electricity that comes from solar panels. For every megawatt hour (MWh) of electricity that a solar energy system produces, a corresponding SREC is created. Just as RECs are bought and sold to transfer the right to count renewable electricity, SRECs can be bought and sold to transfer the right to count solar electricity.
States with SREC programs
Not every state has an active SREC market, and the value of SRECs varies from year to year and from state to state. Talk to your solar installer to learn more about the specifics of the SREC market in your state, or use the Database of State Incentives for Renewables & Efficiency (DSIRE®) to conduct your own research about the financial incentives available to you.
How can I make money with SRECs?
Some states with solar carve-outs have established an SREC market to facilitate the sale of SRECs. When applicable, solar panel system owners can sell their SRECs through the SREC market to utilities that need to buy SRECs in order to meet their solar carve-out requirements.
A typical size for a solar panel system is five kilowatts (kW): this size system will produce about five to eight MWh of electricity per year, and one associated SREC for every MWh produced. SRECs can drastically improve the financial returns of installing solar panels.
The amount of money a solar panel owner will receive for his or her SREC varies by state, and can range from under $50 to over $300 per SREC. This price depends on market factors of supply and demand, as well as a state’s alternative compliance payment (ACP). The ACP is a per-MWh fine that electricity providers must pay if they don’t meet their SREC requirements, and serves as a ceiling on SREC prices – electricity providers will save money by buying SRECs, but only if the SRECs cost less than the ACP.
What happens to SRECs if I move?
If you sell your solar home while there is an active SREC market in your state, you may be able to retain the rights to sell your system’s SRECs even after moving. That being said, it’s most common to transfer the rights to the SRECs to the new homebuyer and new owner of the solar panel system. Many homeowners use this as a negotiating tactic when trying to sell their property for more money.
How do I sell my SRECs?
Step #1: Register your system
(Note: this explanation pertains to the purchase of SRECs in the PJM territory, see map below. If you live outside this area, consult SRECTrade.com)
Many solar installation businesses take care of SREC registration for you. They will register your system with your Public Service Commission and submit the documented system to the Generation Attribute Tracking System (“GATS”) administered by PJM. PJM is a regional transmission organization that manages the electric grid for 13 states and the District of Columbia. GATS should issue an approval in five to seven business days and your system will begin to generate credits.
If your installer does not register your system for you, you can hire an SREC firm to do so. SREC companies normally can complete the registration process for your benefit. See the PJM website for a full list of aggregators and brokers who support each state. Some companies Solar United Neighbors members commonly use include:
- Flett Exchange
Currently offering discounted pricing to members and solar co-op participants in 12 states.
- SREC Trade
Step #2: Choose how you want to sell your SRECs
Once you’re enrolled, you can sell your SRECs. You have three choices:
- Sell the rights to all your system’s SRECs for an upfront payment
- Sell your SRECs using a contract for a set period of time, usually three, five, or ten years.
- Sell your SRECs on the place market as you produce them
- Sell the rights to all the SRECs that will ever be produced by your system
- Get a single, lump sum payment upfront
- After you get no money for SRECs for the duration of your system.
It reduces the out-of-pocket cost of your solar system.
It eliminates all market risk of future SREC price fluctuations.
You know precisely how much you will get from your SRECs and are not exposed to some market uncertainty
It earns significantly less for your SRECs compared to other options.
Best option if
You don’t have enough upfront cash to buy system.
You do not want to undertake any risk associated with future SREC price fluctuations.
Sign a contract with an SREC aggregator for a set period of time, usually three, five, or ten years. You lock in a price for your SRECs.
Every time your system produces an SREC, the aggregator problems you a check
Aggregator sells your SRECs for you and takes a small portion of the proceeds.
It locks in SREC prices for a definite time period, protecting you from market fluctuations.
You know how much you are going to be earning for your SREC & may plan your finances accordingly.
If costs for SRECs drop unexpectedly, you are protected from losses.
You don’t start earning SREC income until after your system is generating power, so it will not help reduce the upfront cost of going solar.
The longer your contract, the less you earn per SREC.
Locked into a price, you might miss out on income if prices rise unexpectedly.
Best option if
You want to know just how much you’ll earn from SRECs within the period of your contract, and you wish to avoid changes in SREC by locking in one price.
SRECs on the spot market
Sell SRECs on the open market occasionally as your system produces them.
Must sell SRECs within three years of making them
You maximize your potential earnings from SRECs.
You take on most risk that future SREC prices will fall.
You have to manage SREC accounts & decide when to sell SRECs.
Best option if
You want to optimize return on SRECs but are ready to take on risk that costs will drop unexpectedly.
If you are thinking about a lease or power purchase agreement (PPA) instead of buying a system, make sure you understand who controls the SRECs. Normally, in lease prices, the solar company will keep the system’s SRECs.